Pure expectations theory expected, forward, someone, please, future

bapswarrior

Pure Expectations theory...
is the expected interest rate that would prevail in the markets in the future ( say 1 year from now)...

Means if the expected IR in the market 1 year from now for 1 year is 5%
if expected IR in the market 2 years from now from now for 1 year is 6 %
if expected IR in the market 3 years from now from now for 1 year is 7 %

and so on...


This is will give us an upward sloping Yield curve

Thanks,
Varun Darji

atate2007

"Under the pure expectations theory , forward rates are equal to expected future spot rates"

Can someone please explain this one?

amqata

Forward rates always look forward...to what? to an epected future spot rate.

nitoha

Thanks VD for the explaination and thanks resolute for the memory aid.